Unemployment Debt Could Get A Federal Break

Arkansas could get relief from some of its debt owed to the federal government, according to several national reports hinting at potential plans from President Obama’s 2012 proposed budget.

According to The New York Times, an anonymous administration source said the President is considering deferring the collection of interest payments on money borrowed by the states to prop up depleted unemployment trust funds.

Talk Business has reported on this important business tax issue on a number of occasions, including state lawmakers interest in floating a bond issue to cover federal debt owed. As of Monday, state leaders involved in discussions on the issue saw no compromise resolution to the dilemma.

As many as 30 states have borrowed roughly $42 billion since the recession of 2008. Arkansas’ estimated debt to the feds is an estimated $330 million.

The Times reports:

Under Mr. Obama’s proposal, the administration would impose a moratorium in 2011 and 2012 on both the state tax increases and the interest payments on the debt.

Then, in 2014, to bring that money back into the federal coffers, the administration proposes to raise the minimum level on which employers pay taxes from $7,000 of earnings to $15,000, giving the states the cash they need to cover their debt to Washington.

The administration is betting that the proposal might appeal to Republicans because it involves a tax moratorium. According to the person familiar with it, the White House has calculated that if the plan is adopted, only two states would still owe money to the federal government after a decade. But if the plan is not adopted, this person said, 17 states would still be in debt to Washington.

You can read the full article here.

Arkansas employers pay taxes to support unemployment benefits on the first $12,000 of an employee’s earnings, so the move may only increase the burden  per employee in Arkansas by $3,000 under the hypothetical Obama plan.

State business and labor leaders, who have been meeting for months to try to resolve Arkansas’ debt dilemma, said they would wait for more specifics before commenting on the subject.